Masses believe market will rebound, sales flat

[powayseller]

SDR, I remember you told me about this couple, and I thought it was so unfair. That was certainly an issue of procuring cause – you had worked with them so long, and they just dumped you. The listing agent was guilty of misconduct – I know that every time I went to an Open House or new house, the realtor would ask if I was already working with an agent. If I was, they are not allowed to try to recruit me.

Anyway, I can’t believe they are already maxed out on their payments.

What do you think is the latent demand for homes? Do you think a lot of people are priced out of the market and are renting because they cannot afford to buy? Versus renting because they are waiting for prices to come down to 2000 levels or below?

And how do you peg people like surveyor and DaCounselor who think real estate will go up in the long haul, and that the best way to get rich is owning real estate?

[PerryChase]

I don’t think that the best way to get rich is owning real estate. It used to be that RE was highly illiquid so after 30 years you had something “to show for.”

The sweat equity factor also allowed people have something to “show for.”

However, so many new products now allow people to tap their equity and even borrow more than their houses are worth. It could turn out that owning RE is the way to the poor house for many.

From a strickly return standpoint, RE doesn’t do nearly as well as other financial investments.

[sdrealtor]

Beebo,
You are an idiot. Plain and simple. There are many explanations as to why trading up can be a reasonable strategy even today. Your 20% decline example is a ridiculous as your constant harping on the median.

The truth is, smart people and good agents transact to beat the market not match the market. Some properties will go down 10% and some will go down 30%. If you get rid of one that goes down 30% and move into one that goes down 10% you are ahead of the game. I have a client that sold a property in 2004 which has since gone down in value by 10% or more and is now living in one that increased in value by 20%. He’s very happy he listened to me. I have a couple clients that bought last year (2005) for family reasons who have seen comparable properties close recently for about 5% more than what they paid. The market isnt up where they bought, they just bought very well and beat the market.

As mentioned by others, money is not everything to everyone. Some people place personal living situations above the concern for losing money on the value of their home.

Still waitng for real examples from the field from you instead of the nonsense you post. He’s another one on my side. A small house just closed today on the west side of I-5 in Del Mar for $715,000 after selling for $750,000 in Summer 2004. It also underwent a major remodelling at a cost of at least 50K. Thats equivalent to an $85K loss without even considering transaction costs.

Not at 2003/2004 prices yet? Nothing you’ve said has proven otherwise to anyone.

[an]

NSR, what are you talking about. As you know, I believe the market will go down. If it is going down, why would I not sell the house? I’m not arguing about delay selling. I’m talking about delay buying. If you sell now, invest the $164k @ 5.3%, in 3 years, that $164k will be $191k. Granted it drops 20% in 3 years, That $800k house will be $640k. You down $191k and your mortgage will be 449k.

$449k @ 7% = $2987.21/month (PI)
$449k @ 9.75% = $3857.60/month (PI)

Now, does it make sense to buy now compare to buy later IF it drops 20%? Moving, some hassle for 3 years will save you $850/month for the next 30 years. How’s that for a payoff for a little of hassle?

[PerryChase]

sdrealtor, as first, I thought that you were just a RE industry booster. But as I read your posts, I tend to you agree with you. You’re realistic about the market and aren’t trying to justify the declines as insignificant.

I’m fairly optimistic about the general economy and a realist about the real estate market. There’s nothing like looking at individual houses (or same houses) and see how they’ve declined. That gives a true picture of the market, especially for a potential buyer who wants to buy in a certain neighborhood. There’s no need to look at the stats bandied about by the analysts.

[no_such_reality]

AN, if you’re expectation is 100% that the price on the home is going down 20% then yes, waiting is the solution. But that isn’t housing market. In 2005, some zip codes and homes saw 15% gains while others saw 15% losses.

If you look at the housing market and say hmm: maybe it goes down 20%, maybe only down 10%, maybe it stays flat, maybe it actually paces inflation and you get a variety of answers. The only way waiting works is IF it goes down and down significantly. Will interest rates stay flat, with they climb?

How long have we be saying that the market needs to correct? If you’d had done the sell and wait in 2004, you could be in for a long wait still to get back to even.

That’s my point, if you need a place to live that can support a family and want a yard, the move up sale still makes sense if you drive a good deal and can afford the payments. If you don’t assume and assured drop in price, the math points to a wash.

[an]

PC, once again, I completely agree with you. I’m optimistic on the general economy and realist about the RE market. I don’t care how we reach fundamental. I know they will eventually get there. Be it rent and income rising and have massive inflation, or price falling.

I also agree on the same home sale price over median. That’s similar to analysts looking @ same store sale for retailer instead of just total revenue. It gives you a much better picture of the condition on the floor.

[2Buy-or-Not2Buy]

Here are some other examples that support sdrealtor’s view that we are near 2004 prices (at least in Kensington):

Kensington (north of Adams)… purchased for $599k in Oct 2004, now listed for $589k-$619k and on market for 80 days.

Kensington (north of Adams)… purchased for $729k in Mar 2004, now listed for $699k-$735k and on market for 55 days.

Kensington (north of Adams)… purchased for $900k in Jul 2004, now listed for $859k and on market for 27 days after a previous listing expired earlier this year.

[an]

Mira Mesa is also priced somewhere between 2003 and 2004 too. There are plenty of examples, just too lazy to dig it up.

[sdrealtor]

PC,
Thank you, I appreciate the nod toward credibility. The truth is as an individual I really dont like spending money whether its my own or my clients. When I do, and there are lots reason to do so even in bad RE markets, I take it as a personal challenge to beat the market.

SDR

[an]

NSR, I thought the whole argument is based on an assumption that we will see a 20% drop in price and a 1% rise in rate. If you’re talking about uncertainty and what can happen in the future, then there’s also a possibility that rates will drop as well. So, if you wait, price stay flat but rates drop to 2%, then it would still make sense to wait. You’re the one who posed the assumption, so I’m just working with what you assume. If you buy in 04 in Mira Mesa, you’re already back to even at this point.

I agree with you, if you need a place to live, and can fork the bill for PITI on a $800k house, go for it. Just don’t get pissed if your neighbors buy their house for less. The question is, how many can truly afford a $640k loan and still save for retirement + children’s college fund + still live comfortable (i.e. travel and go out to eat once in awhile). You have to be making about $250k/year at the very least to do that.

[SD Realtor]

PS –

Yeah I remember emailing you about this couple as well. Pretty ironic. Hard to answer alot of your questions…. Plus I am kind of sleepy so I don’t have much energy to write…I think that people who believe real estate will go up in the long run are CORRECT. However they should be prepared that the long run may be a VERY long run. I think it is nearly impossible to pick out a residential property that didn’t appreciate in the long run. It is the hold and hope strategy… (anyone listen to Mo Ansari?)

However those that make money in real estate investments do it in a more prudent manner. They are nimble and they identify emerging markets as well as divest out of deteriorating markets or markets that are peaking…

Anyways surveyor and Counselor may very well do okay in the long run..

You already know my strategy though… renting until I feel the market has become more stable.

[surveyor]

Wait a minute…

I think that people who believe real estate will go up in the long run are CORRECT.

Isn’t that kind of thinking heresy here? 🙂

Oh, for perrychase, I think that real estate is a better vehicle to get rich because of the formula below:

Return on real estate = (Cash flow + Appreciation + Depreciation)/downpayment

Using this formula, you can choose properties that can give you a rate of return better than 20%.

[Author]

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